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GBP/USD exchange rate to experience volatility following US Inflation?

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GBP/USD exchange rate firms ahead of US CPI

The pound US dollar (GBP/USD) exchange rate is edging higher today ahead of the latest US inflation data expected later this afternoon.

At the time of writing the GBP/USD exchange rate is trading at around $1.2605, up roughly 0.2% from this morning’s opening rate.

Inflation data to infuse volatility in the US dollar (USD)?

The US dollar (USD) is trading in a narrow range against the majority of its peers this morning as investors hold off from placing any aggressive bets ahead of the latest US inflation data.

Economists forecast an easing in both core and headline inflation in April’s annualised figure, with core inflation expected to cool from 3.8% to 3.6% whilst headline inflation is expected to cool from 3.5% to 3.4% for this reading.

Should the data match expectations and show signs that US inflation is moving closer towards the Federal Reserve’s 2% target, USD exchange rates could weaken in the aftermath of the release.

Further undermining the ‘Greenback’ today is an upbeat market mood. As a safe-haven currency, the USD is struggling to catch bids amid today’s improvement in risk-appetite.

Pound (GBP) to strengthen amid upbeat market mood?

The pound (GBP) is managing to attract investor attention today thus far thanks to cheery trading conditions and its increasingly risk-sensitive nature.

However, ramped up Bank of England (BoE) interest rate cut bets have served to cap the pound’s potential gains as markets continue to speculate over the timing of the first BoE rate cut this year following some disappointing UK labour data released yesterday.

Furthermore, some dovish commentary from the central bank’s Chief Economist Huw Pill yesterday afternoon has seen markets reprice their current rate cut bets, with money markets now pricing in an over 50% chance that the BoE will enact its first rate cut in June this year, which has seen Sterling sentiment dampened through to today.

Looking ahead, the pound’s movements are likely to remain limited for the remainder of the week as UK economic data will be in short supply.

As such, GBP is likely to trade in line with risk dynamics and could strengthen against its peers should today’s positive trade continue into the second half of the week.

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